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Simmons v. Mark Lift Industries10/24/2005
269, 272 (2000) (same); Clark v. Cantrell, 339 S.C. 369, 378, 529 S.E.2d 528, 533 (2000) (same); Antley v. New York Life Ins. Co., 139 S.C. 23, 30, 137 S.E. 199, 201 (1927) ("In state of conflict between the decisions, it is up to the court to 'choose ye this day whom ye will serve'; and, in the duty of this decision, the court has the right to determine which doctrine best appeals to its sense of law, justice, and right.").
LAW AND ANALYSIS
1. SUCCESSOR LIABILITY AFTER PURCHASE OF ASSETS
Simmons asserts the Court should adopt either of two exceptions to the general rule that a successor corporation which purchases the assets of a predecessor corporation is not liable for the predecessor's obligations and liabilities. Both exceptions - continuity of enterprise and product line - are grounded in the premise that a person who is injured by a defective product should be able to bring a product liability action against a company which purchases the assets of an unrelated company and then continues manufacturing and distributing essentially the same product using the predecessor's assets, equipment, intellectual property and goodwill.
Terex contends we should reject both exceptions and instead apply the four traditional exceptions to the rule that a successor corporation, in an asset purchase, usually does not assume the liabilities of the predecessor entity. Terex argues that none of the four exceptions apply in this case, and Simmons' lawsuit should be dismissed on a motion for judgment as a matter of law.
In South Carolina, in the absence of a statute, a successor or purchasing company ordinarily is not liable for the debts of a predecessor or selling company unless (1) there was an agreement to assume such debts, (2) the circumstances surrounding the transaction warrants a finding of a consolidation or merger of the two corporations, (3) the successor company was a mere continuation of the predecessor, or (4) the transaction was entered into fraudulently for the purpose of wrongfully defeating creditors' claims. Brown v. American Ry. Express Co., 128 S.C. 428, 123 S.E. 97 (1924) (successor corporation which purchased part of predecessor's assets was not liable for lost shipment by predecessor, where successor did not assume liability for such debts and predecessor remained a live and going concern with substantial assets). The case at hand involves the application of the emphasized "mere continuation" exception.
Courts nationwide apply the general rule expressed in Brown, which originated in the common law, to determine successor liability in the context of contract and creditor-debtor cases. E.g. Huff v. Shopsmith, Inc., 786 So.2d 383, 388 (Miss. 2001); Niccum v. Hydra Tool Corp., 438 N.W.2d 96, 98 (Minn. 1989); Martin v. Abbott Laboratories, 689 P.2d 368, 384 (Wash. 1984); Schumacher v. Richards Shear Co., 451 N.E.2d 195, 198 (N.Y. 1983); Johnston v. Amsted Indus., Inc., 830 P.2d 1141, 1142-43 (Colo. App. 1992); 15 Fletcher Cyclopedia Corporations § 7122 (1999); 1 American Law of Products Liability 3d § 7:1 (2001).
Most courts traditionally have applied the mere continuation exception (also known as a de facto merger) contained in the general rule on successor liability only when there is commonality of ownership, i.e., the predecessor and successor corporations have substantially the same officers, directors, or shareholders, and the business continues largely unchanged. E.g. Taylor v. Atlas Safety Equip. Co., 808 F. Supp. 1246, 1251 (E.D. Va. 1992) (applying Virginia law and stating that continuity of shareholders and management is key element of mere continuation exception); 15 Fletcher's Cyclopedia Corporations § 7123.2
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